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Friday, May 8, 2015

It is a purchase, not a bailout

Lembaga Tabung Haji is said to have bailed out 1MDB by purchasing a certain asset owned by 1MDB.

The word ‘bailout’ is a negative term and has been intentionally used or misused to insinuate that there is something wrong going on.

When Bank Bumiputra Malaysia Berhad (BBMB) practically went bankrupt because of BMF’s bad loans in Hong Kong and Petonas was forced to pump in money to save the bank that would be considered a bailout.

Bailouts occur when money is pumped into the ailing organisation without any returns on that money. Neither do you receive dividends or do you get your money back.

Perwaja was a bailout because if money had not been pumped into that company then it would have gone under. Again, there were no returns on the money the government pumped into Perwaja.

When the government bought back the MAS shares from Tajudin Ramli that was a bailout. If the government had not bought the shares back then Tajuddin would have gone bankrupt and the government was forced to buy back the shares at way above market price thereby incurring a huge loss to the taxpayers.

As Tun Dr Mahathir Mohamad said, when Petronas was asked to buy over Konsortium Perkapalan Berhad that was not a bailout. Mirzan Mahathir wanted RM2 billion so that he could cover his RM1.7 billion debts but in the end Petronas agreed to pay only RM1 billion.

So Mirzan ‘lost’ RM1 billion on the deal while Petronas later sold the company for a huge profit of hundreds of millions. In such a situation, since Petronas made money on the deal, that cannot be considered a bailout but a buyout -- although if Petronas had not bought over the company Mirzan would have gone bankrupt.

So, when Tabung Haji bought over that asset from 1MDB at a slight discount over market value do you call it a bailout when Tabung Haji did not pump money into 1MDB for no returns whatsoever like what happened in all those other examples above?